nomination and hibah issues in takaful

ISRA Shari’ah Conference on Takaful 2009 (ISC2009)

Nomination and Hibah Issues in the Takaful Industry1

By

Azman Bin Ismail

Introduction

Nomination in insurance is the act of naming a person to receive policy moneys payable

in the event of the death of the policy owner1. In this context, the nominee may or may

not be a beneficiary. In many jurisdictions, the nominee would be a beneficiary if he/she

is the legal spouse or child of the insured2; otherwise the nominee would not receive them

as a beneficiary. As for the takaful industry, the issue of nomination only been discussed

recently3 and there seems to be divergent views on the matter since different takaful

operators implement different practices.

Nomination in perspective

The issue of nomination in takaful can be resolved by understanding its context in the

legal framework. The legal framework in many jurisdictions where takaful is being

practiced or operated is influenced to a large extent by the English common law, parts of

which may be diametrically opposed to the sharciah. This may be compounded further by

legislation that may augment these conflicts. Having said that, existing laws in some

jurisdictions are inadequate to comprehensively deal with the issues although there have

been efforts to address them.4

One issue that legislation in many countries has not addressed is whether the takaful

operator is obligated to pay the takaful proceeds to the nominee. Even in Malaysia, where

there is a special legislation to govern the takaful industry, the takaful operator is not

1 Paper presented at the ISRA Takaful Workshop, 7 May 2009, Kuala Lumpur


obliged to pay the nominee. Section 65(1) of the Takaful Act 1984 states that, “When a

participant, in relation to any family solidarity certificate or solidarity certificates, dies

and on his death takaful benefits are payable under the certificate or certificates, the

operator may make payment to a proper claimant such sum of the solidarity moneys as

may be prescribed without the production of any probate or letters of administration and

the operator shall be discharged from all liability in respect of the sum paid.”5 However,

the proper claimant is not necessarily the nominee as Section 65(4) of the Act states that,

“In this section, “proper claimant” means a person who claims to be entitled to the sum

in question as executor of the deceased, or who claims to be entitled to that sum under

the relevant law.”6

This is not surprising since the Takaful Act 1984 was adapted from the Insurance Act

1963 which has since been replaced by the Insurance Act 1996. Indeed Section 6(1) of

the Takaful Act 1984 is a carbon copy of Section 44 (1) of the Insurance Act 1963 which

states that, “When a policy owner, in relation to any life policy or life policies, dies and

on his death policy moneys are payable under the policy or policies, the insurer may

make payment to a proper claimant such sum of the policy moneys as may be prescribed

without the production of any probate or letters of administration and the insurer shall be

discharged from all liability in respect of the sum paid.”7 Again, the proper claimant is

similarly defineds as, “...a person who claims to be entitled to the sum in question as

executor of the deceased, or who claims to be entitled to that sum (whether for his own

benefit or not) and is the widower, widow, parent, child, brother, sister, nephew or niece

of the deceased; and in deducing any relationship for the purposes of this subsection an

illegitimate person shall be treated as the legitimate child of his actual parents.” The

only difference between the two definitions is that the one under the Takaful Act 1984 is

general in nature to include all possible heirs under the sharicah.

Neither the Takaful Act 1984 nor the Insurance Act 1963 have provisions to enforce

insurers or takaful operators, as the case may be, to make payment to the nominee

irrespective whether the nominee is a beneficiary entitled to the proceeds or not. On the


other hand, Section 163 of the Insurance Act 1996 gives the policy owner the power to

nominate any person, albeit a “natural” one, to receive the proceeds. Should that be the

case, Section 65 of the Act compels the insurer to pay the proceeds to the nominee even if

it is not endorsed on the policy.8

Status of nomination in takaful

Like life insurance, the purpose of nomination in takaful is to ensure that the beneficiaries

of the participant have access to the takaful proceeds as quickly as possible without going

through the lengthy administrative delays of estate administration as it is not subjected to

the Probate and Administration Act 1959 and the Will Act 1959.9 The issue now is, what

is the status of the nomination and how would the courts, whether in Malaysia or

elsewhere, decide in the event of a dispute among competing claimants? In non Muslim

countries where takaful is allowed to operate and there is no particular legislation

governing Muslim affairs, family takaful proceeds are treated as life insurance proceeds

and provisions of the Insurance Act10 or other relevant enactments such as the Financial

Services Act.11 In countries such as Singapore where there exists a special legislation for

Muslims such as the Administration of Muslim Law Act (AMLA), problems could still

arise due to the different interpretations and opinions of the various the mazahib let alone

of the AMLA itself. In Malaysia, the Takaful Act 1984 does not specifically affirm the

status of the takaful proceeds but Section 65 (4) presumes that in the case of a Muslim

participant, it should be distributed according to the sharciah and that in the case of a

non-Muslim participant, it should be distributed according to the Distribution Act 1959.12

The writer is of the opinion that, in the case where there is nomination, the takaful

operator should pay to the nominee, whether or not the nominee is the beneficiary and

that the takaful operator should be discharged from all liability in respect of the sum paid.

This is to ensure that the family of the participant has immediate access to financial

assistance in the interim period before eventual distribution of the estate .Therefore, in

Malaysia, should there be an amendment or review of the Insurance Act 1996 or the

enactment of another act to replace it, this matter should be given consideration.


The next issue is whether participants can give away the takaful proceeds as hibah. The

takaful proceeds are made up of either the participant’s contribution in his/her investment

account or the risk account pooled from participants’ tabarruc portion. Under the

sharciah, the takaful proceeds from the investment account may be given away as hibah

as it is the property of the participant, but what is the status of the tabarruc portion? It

seems that there are differing opinions on this. Some takaful operators do not allow

takaful proceeds in general to be given as hibah and participants do not have this option.

Presumably their sharciah committees have not approved that the proceeds be given away

as hibah. One possible argument for this is that the takaful proceeds are non existent at

the time when the hibah is executed. According to jurists, when the object of gift is non

existent at the time the hibah is executed, the contract is void.13 However, the rationale

(cillah) for the prohibition is similar to the ones governing sale contracts i.e. the existence

of gharar as the Sheikh mentioned the general rule that whatever can be sold can be

given as hibah. However, the opposite is not necessarily true and according to the

majority of jurists, gharar does not affect gifts and other non-commutative contracts.14

Indeed an analysis of the texts by Sheikh Wahbah Zuhaily above15 revealed that certain

non-sellable items can be given away as gifts.16 Furthermore, there are differences

between takaful proceeds and the items that are deemed invalid to be given as gifts. All

the invalid items mentioned, such as unripened fruit, the offspring of a sheep, an unborn

calf, flour in the form of wheat and butter within milk17 cannot be quantified whereas the

takaful proceeds is clearly determined. What is important in making comparison between

items is not what similarities there are but whether there are also material differences. In

this case the difference is material, as the very prohibition of gharar is understood by

jurists to be based on a cost-benefit analysis18; therefore they cannot be grouped in the

same set together with the invalid items as the corrupting factor in gharar is the fact that

it leads to (kawnuhu matiyyat) dispute, hatred, and devouring others’ wealth wrongfully

and it is known that this corrupting factor would be overruled if it is opposed by a greater

benefit (al-maslahah al-rajihah).19 On the other hand, giving away takaful proceeds as

gifts will definitely brings greater benefit as the participant need not pay for a higher


contribution20 and the possibility of it leading to dispute, hatred, and devouring others’

wealth wrongfully is very small.21 Indeed the Sharciah Advisory Council of Bank Negara

Malaysia has rightly resolved that, “Takaful benefit can be used for hibah since it is the

right of the participants. Therefore, the participants should be allowed to exercise their

rights according to their choice as long as it does not contradict with sharciah.”22 Dallah

Al Barakah has also come to the same conclusion although the rationale was different. It

states, “It is permissible to distribute the (takaful) death benefit according to the law of

mirath (Islamic law of succession), as it is also permissible to distribute the payment to a

particular individuals or parties as specified by the participant on the basis that the benefit is

the contribution of other participants to the beneficiary as specified by the participant and not

his estate.”23

It was also argued that the payment of takaful benefits upon the death of the policyholder

before the maturity of a plan seemingly belongs to the deceased policyholder’s legal heirs on

the grounds that it is the product of the deceased’s effort and hence is part of his tarikah.24

Even though the money comes into existence only after the participant’s demise, it is the

effort of the participant by entering into the contract, which realizes the financial assistance

in favour of his legal heirs upon his death.25 Therefore strictly imposing a duty on the

appointed nominee to distribute the money among the legal heirs of the dead participant

seems to contradict the objective of both the takaful and is not based on valid arguments.26

Like life insurance, the purpose of family takaful is to create an instant estate in the event

of the early demise of a breadwinner. Indeed it is the only instrument available to us,

especially in this modern world where the Islamic system is not adopted fully. From the

sharciah perspective, leaving behind one’s heirs rich is better than leaving them poor

asking from others.27 It is also a risk management technique and risk management is part

of Islamic teachings. For example, when the Prophet Yacqub a.s. told his sons not to enter

through one gate,28 it shows us that one must diversify one’s risk to reduce the probability

of loss. The same surah also narrates the story of the Prophet Yusuf a.s. as reducing risks

through the implementation of a fifteen year economic plan.29 Indeed the particular surah

has lessons not only in faith and fate but also financial planning30. In financial planning,


estate planning plays an important role and hibah is a very simple yet powerful that can

be used.31

A consequential issue to the hibah concern is whether the hibah of the takaful proceeds

can be revoked. In this respect, we need to consider the legal framework of the particular

country in which takaful operates as it will affect the legality of the hibah and any

jurisprudential opinion must give due consideration to it. This philosophy is aptly

captured by Imam Ibn Qayyim al-Jawzi when he said, “Changes in fatwa are evaluated

by changes in time, places, conditions and customs.”32 In many countries, legislation

provides protection for spouses and children and in naming them, a statutory trust in

favour of the nominee of the policy moneys payable is created.33 Having said that, life

insurance is important especially in some jurisdictions as an additional means of

providing liquid assets to the estate and surviving spouse34 It is usually received by the

beneficiary free of income tax and the proceeds can be used for the payment of estate

debts and expenses and for support.35

The issue of whether a gift can be revoked has not only attracted the attention of Muslim

jurists; in English law the issue has been the subject of various legal principles,

precedents and legislation. Prior to the Policies of Assurances Act 1867, a life policy was

not assignable in law and although equity always permitted such assignments, the

assignee could only sue to enforce the policy if he joined the assignor in the action and an

insurer cannot obtain a good discharge against payment from assignees alone.36 The Act

protects legal assignment and the assignee can enforce it in his name.37 It can also be

assigned under Section 136 of the Law of Property Act 1925 but a court found that this is

not strong enough.38

Since then, various legislations have been enacted to protect the weak in society. Some of

these are the Married Women Property Act 1882 and the Law of Property Act 1925 in the

United Kingdom, the Singapore Conveyancing and Law of Property Act 1909, and the

Civil Law Act 1956 in Malaysia. The Civil Law Act 1956 for example, provides for the


creation of trust policies which are actually meant for “poor widows” although it is wide

enough to cover husbands as well.39 Specifically, Section 23(1) of the Civil Law Act 1956

states, “A policy of assurance effected by any man on his own life and expressed to be for

the benefit of his wife or of his children or of his wife and children or any of them, or by

any woman on her own life and expressed to be for the benefit of her husband or of her

children or of her husband and children or any of them, shall create a trust in favour of

the objects therein named, and the moneys payable under any such policy shall not as

long as any object of the trust remains unperformed form part of the estate of the insured

or be subject to his or her debts.” The above is further affirmed by Section 166 (1) of the

Insurance Act 1996 reaffirms the above and it states :

A nomination by a policy owner, other than a Muslim policy owner, shall create a trust in

favour of the nominee of the policy moneys payable upon the death of the policy owner,

if—

a) the nominee is his spouse or child; or

b) where there is no spouse or child living at the time of nomination, the nominee is his

parent

The above is augmented with Section 166(2) which states that, “Notwithstanding any

written law to the contrary, a payment under subsection (1) shall not form part of the

estate of the deceased policy owner or be subject to his debts.”

The implication of a trust policy is that the policy moneys do not form part of the estate

and that it is not subject to creditors, provided not created to defraud creditors.40 Indeed a

policy owner cannot deal not deal with a such policy by revoking a nomination under the

policy, by varying or surrendering the policy, or by assigning or pledging the policy as

security, without the written consent of the trustee.41

In Re Fleetwoods Policy,42 F insured his life for £500 payable to his wife in the event of

his death but also giving him the option of taking its cash value and accumulated profit if


he is still living after twenty years. The insured went for this option and requested for

payment amounting to £288. However, the insurer refused to issue the payment without

the consent of the wife and the matter was brought to court. The court held that the policy

fell within Section 11 of the Married Woman Property Act 1882 as being effected by a

man on his own life. The fact that the benefit to the wife is contingent in character was

irrelevant and F is actually a nominee for the purposes of the trust. In Cousins v Sun Life

Assurance Society, it was held that it belong to her estate even though the husband

remarried.43

In Sadiq Ali v Zahida Begam,44 a husband assigned policies of insurance to his but it was

contended that the assignment amounted to a gift, and it was invalid under the Muslim

law. The validity of the assignment was attacked on two grounds namely that it was a gift

in futuro and a contingent gift. The High Court (Thom C.J. and Ganga Nath J.) in the

course of its judgment said, "It is essential for the validity of a gift that there should be:

(1) a declaration of the gift by the donor, (2) an acceptance of the gift, express or implied,

by or on behalf of the donee, and (3) delivery of possession of the subject of the gift by

the donor to the donee. Where a person has assigned his right to receive money under

insurance policies and the assignee has stated on oath that the policies were handed over

to her and she accepted them, the gift is complete as soon as these conditions were

complied with. The mere fact that the money was to be realised in future is not enough to

make it a gift in futuro. Valid gifts can be made of actionable claims."45

In CT Muthiah v Controller of Estate Duty46, the Supreme Court upheld the ruling of the

Madras High Court and concurred that the proceeds of a personal accident policy, unlike

a life insurance policy, forms part of the estate and therefore chargeable to estate duty

implicating that the nominee is solely a nominee. What this statement intends to show is

the implicit status of a life insurance policy where it referred to the case that arose before

the Jammu and Kashmir High Court in the case of Controller of Estate Duty v. Kasturi

Lal Jain.47 Ali. C. J. as the learned judge then held that before a property could pass to


the heirs of a deceased person under Section 5 of the Estate Duty Act 1953, it had to fulfil

the following conditions :

(1) That the property must be in the power, possession and control (actual, constructive or

beneficial) of the deceased.

(2) That the deceased must have an interest, whether in praesenti or contingent, in the

said property.

(3) That the property must be in existence during the lifetime of the deceased or at the

time of his death.

(4) That the deceased must have a power of disposition over the property.48

In Re Man Bin Mihat,49 which is earliest case dealing with the provision of the Civil Law

Act 1956, the assured had taken out an insurance policy on February 20, 1962 for$ 40,000

on his life and named his wife as the beneficiary. The question then arose whether the

money payable under the policy belonged to her beneficially or formed part of her

husband's estate, to be distributed among his heirs and it was held that:

(1) by virtue of section 23 of the Civil Law Ordinance 1956 as the policy of assurance

was effected by the assured on his own life and expressed to be for the benefit of his

wife, the moneys payable under the policy did not form part of the estate of the deceased;

(2) Muslim law does not disentitle the widow to take beneficially as it is lawful for a

Muslim to dispose off his property during his life time by way of a gift or through

trustees.50

The above was further reinforced by the decision of the court in Re Bahadun Bin Haji

Hasan,51 Kishabai v. Jaikishan,52 Manomani v. Great Eastern Life Assurance Co Ltd 53

and Shunmuga Vadevu S Athimulam & Ors v The Malaysian Cooperative Insurance

Limited & Anor.54 In Re Bahadun Bin Haji Hasan it was held that that there was nothing

in Muslim Law to prevent the deceased from making such a disposition in his lifetime of

the policy money to the respondent on his death.55 Furthermore, there was a completed

gift even though the gift was contingent upon the life assured predeceasing the


respondent before the maturity of the life policy.56 It was also found that the disposition

was in the circumstances a gift by the deceased to the respondent and such gift does not

constitute a disposition by will and that reason it was in the court’s judgment that the

sum payable under the policy should be paid to the respondent for her own benefit and

this sum does not form part of the assets of the estate of the deceased. In Kishabai v.

Jaikishan B.T.H. Lee J, inter alia, held that the purpose of s. 23 of the Civil Law

Ordinance 1956 was to protect the interests of the widow and the children of a deceased

assured who had created a trust in their favour pursuant to its provision. In Shunmuga

Vadevu S Athimulam & Ors v The Malaysian Cooperative Insurance Limited & Anor, it

was held among other that :

The first plaintiff was at all material times the wife of the deceased and she was nominated as a

nominee under the policy. The deceased had not at any time appointed a trustee for the policy

moneys. Thus, by virtue of s. 166(3) of the Insurance Act, the first plaintiff, as nominee, was the

trustee. Thus, her written consent was required to effect any revocation of nomination. No such

written consent was obtained and as such, the purported nomination of the second defendant was

void.57 It was also held that :

Section 23(1) of the CLA and s. 166(2) of the Insurance Act provides that where the beneficiaries

of a life insurance policy are the spouse or children of the insured, the moneys payable shall not

form part of the insured’s estate. Section 165(1) of the Insurance Act further provides that where

a nomination is made, the insurer is to pay the policy moneys according to the nomination. As the

first plaintiff was the only nominee and sole beneficiary under the policy, she was entitled to be

paid in her own right.58

Although by default takaful proceeds are subject to faraid, Islam allows one to dispose

one’s assets during one’s lifetime and the decisions of the courts in Sadiq Ali v Zahida

Begam, Re Man Bin Mihat and Re Bahadun Bin Haji Hasan can be understood in the

context of the decisions of the sharicah of both Dallah al-Baraka and Bank Negara

Malaysia. Therefore these courts decision were correct and in line with the objectives of

the sharicah. The other question then, is whether in the above cases the gifts were valid


because it was forced by legislation. The answer would be in the positive because the

person has the option to participate in the life insurance. Whether or not the insured, and

in our case the participant, is aware of the implication is another in matter in which the

authorities and industry players, including their agents must play their role. If this

reasoning is followed, then the opposite contention, i.e. that the insured wants to

nominate their loved ones as beneficiaries, is equally applicable. Having said that, it has

now been proposed that changes to the law are made to allow for both irrevocable and

revocable nominations.59

The issue for takaful then is, in the context of the above legislations and judgements,

whether a hibah of takaful proceeds can be revoked without the consent of the nominee

or the trustee. In this respect there seems to be a divergence of opinions on the revocation

of gifts. This is so due to the different opinion on the grade of the ahadith relating to gifts

and differences in extracting the rules thereof. The main hadith that are quoted in the

discussion on the legality of revocation of gifts are as follows :

“The person who revokes his gift is like the dog that licks its vomit.”60

“The donor should not revoke his gift except when the father makes gift to his son.”61

As to the first hadith, some jurists such as Imam an-Nawawi are of the opinion that it is

not haram to revoke the gift but only makruh.62 According to Imam Malik, Imam Shafici

and Imam Ibn Hanbal and the majority of culama to revoke the gift after making over its

possession is unlawful.63 According to Imam Shafici, swallowing the vomit is haram thus

revoking a gift is haram because gift is a covenant for proprietorship and revocation is

opposed to the said purpose.64 Al-Sharakhsi concluded that revocation between intimate

ones such as husband and wife and between relatives is forbidden because it is a step that

negates love and affection between them.65 Saidina Ali (kw) is reported to have opined

that the revocation by a husband is invalid whilst that by a wife is valid because 1) the

husband is capable of compelling the wife but the wife is not capable of compelling her


husband and 2) a wife can be intimidated by her husband while a husband has no such

fear.66 His argument is that a gift made by a person under compulsion is not valid because

the condition for the validity of a gift is free and complete consent and compulsion

annihilates consent.67 Ibn Hazm, in his lengthy arguments concluded that one cannot

revoke a gift except in the case of fathers and mothers to their children, whether the

children are minors or not but cannot be revoked if the donee (children) dies before

revocation is made.68 Sheikh Wahbah Zuhaily is of the opinion that a hibah cannot be

revoked if :69

1- compensation (ciwad) is made a condition of the contract

2 - non material compensation

3 - increase in the gift

4 - gift no longer with recipient

5 - if either party died

6 - if gift was consumed or perished

7 - if the recipient marries

In the context of the juristic opinions and the legal framework in many countries where

takaful operates, it makes more sense to prohibit revocation of takaful benefits in line

with legislation that have been enacted in these countries, otherwise conflicts may arise

and there will be a greater harm to participants, their families and ultimately, society.

Furthermore, the juristic opinion prohibiting revocation of gifts is the stronger opinion (al

qaul al rajih) as we have seen above. Therefore, takaful benefits should be allowed either

to form part of the estate or be given as hibah similar to the conventional life insurance

practice in the context of the overall estate planning. In life insurance, revocable life

insurance trusts may also be used as a vehicle for the payment of debts, expenses and

claims against the estate and an irrevocable inter-vivos trust, the proceeds of the policy

will not be removed from the insured’s gross estate.70

Another issue that arises is whether we should allow the gift of takaful proceeds to be

given to those who have insurable interest only? In conventional insurance, It is only


recently that a person is deemed to have insurable interest on his/her spouse and

children71 as it was argued that a person’s affection for himself is presumed to be such as

to give him a sufficient interest to insure his life and therefore his affection for his wife

and children would give him the same sufficient interest to insure their lives.72 Prior to

that, this is not the case. For example, it was argued in 1830, in Halford v Kymer, that a

father had an interest in the life of his son because, if the son died, the chance of the

father being maintained in old age was diminished but this argument was rejected73. It

was also decided in Barnes v London, Edinburgh and Glasgow Life Ins Co74 that the son

has no legal duty to maintain a parent and the parent has no insurable interest in the life

of the son on this kind of ground. It was also held in Worthington v Curtis,75 that the

investment in the maintenance and education of the child gives the parent no insurable

interest in the life of the child.

As mentioned above, the principle of insurable interest has been incorporated in statutes

to include spouses and children but is only applied for insurance participation and

conventional insurance practice does not limit the nomination to those with insurable

interest only. The only limitation is that the nominee must be a “natural person” in some

jurisdictions.76 In the context of takaful there have been arguments during the previous

ISRA Sharciah Scholars Dialogue that it should be limited to those with insurable interest

only.77 In this context, insights can be gained from jurists’ discussion preferential gifts.

In this respect, there is no definite provision in the Quran about the legal status of a

preferential gift but there are several verse which give certain directions for dealing with

property by Muslims such as78 :

• Eat and drink, but be not prodigal. Lo! He loveth not the prodigals.79

• Give the kinsman his due, and the needy, and the wayfarer, and squander not (thy

wealth) in wantonness.80

• Those who, when they spend, are neither prodigal nor grudging; and there is ever

a firm station between the two.81

• They ask thee what they ought to spend. Say: That which is superfluous.82


• And spend of that We have bestowed upon them.83

• It is not righteousness that ye turn your faces to the East and the West; but

righteous is he who believeth in Allah and the Last Day and the angels and the

Scripture and the Prophets; and giveth his wealth, for love of Him, to kinsfolk and

to orphans and the needy and the wayfarer and to those who ask, and to set slaves

free84

It can easily be concluded from the study of the above verses that the Quran lays great

emphasis on spending wealth in a proper manner.85 However, jurists have not agreed

whether the preferential gifts are prohibited and arguments for and against it have been

advanced based on several ahadith.86 Among others, the ahadith by Nu’man Bin

Bashir,87 Sa’d bin Abi Waqqas88 and Jabir89 are quoted. The tradition from Nu’man Bin

Bashir have been interpreted both ways, thus both the contending group of jurists try to

prove the correctness of their stand or rule of conduct through the said tradition.90

According to the Hanafis, Shaficis, Shicahs and some of the Malikis, a Muslim in his

lifetime and in health is entitled to make gift of his entire or part of his property to

whomsoever he likes91 but the Zahiris and one version of the Hanbalis prohibited

preferential gifts.92

From the hadith of Nu’man Bin Bashir, Imam al- Shafici lay the down the following rules

:

1. The courtesy demands that no preferential treatment ought to be accorded to one

over the other of the of the issues so that in the heart of the one neglected there

may not arise a feeling that may lead him astray from the right path of virtue.

2. The second rule upholds validity of the gift in favour of some of the issues. Had it

not been so the Prophet would have directed the donor to retract from what would

be void ab intio.

3. The third rule is the validity of the father’s revoking from gifts in favour of his

issues.93


In conclusion, preferential gift according to most of the classical jurists is quite valid

although such gifts are undesirable to the degree of prohibition.94 Having said that, the

Companion Successors, later Imams and jurists have considered it advisable to put

restraint on acts of expenditure of a major prodigal person exceeding limits is against the

sharicah and is unacceptable.95 In this respect Sheikh Shaltut said that the law relating to

a person of weak understanding who wastes his property or expends the same on such

objects which are not in any worth in the sharicah, is that he shall be stopped from

expending his property.96

If we accept the majority opinion that allows preferential hibah, then by extension, hibah

to anyone is allowed and consequently hibah of takaful proceeds through nomination

should be allowed. Whether or not the person making the hibah is fair to his/heirs is

beyond our knowledge and we judge by what is manifest, Allah judge by what is

hidden.97 However, if we know for sure that the participant is giving the hibah to avoid

his/her responsibilities, then existing laws can be used or strengthened to ensure that the

hibah instrument cannot be used to defraud creditors.98 Having said that further research

into this are is needed.

Conclusion

There are several issues of nomination and hibah in takaful but these can be resolved

using the concept of constructive creative ijtihad (ijtihad ibda’i insha’i) or ijtihad tarjihi

intiqa’i as proposed by Sheikh Yusuf al-Qaradawi. Sharicah advisors of both Dallah al-

Baraka and Bank Negara Malaysia allow the takaful benefits to be given as hibah and the

judgement of the courts in Sadiq Ali v Zahida Begam, Re Man Bin Mihat and Re

Bahadun Bin Haji Hasan are in line with their opinions. Having said that, the current

practice to allow nomination of nominees who act as trustees and administrators of the

estate should be continued.


Most jurists prohibit the revocation of gifts except from a parent to a child. However, in

the case of a gift by a parent to a child, the gift belongs to the estate of the child should

the child die before the parent according to some jurists. This is the most appropriate

opinion to be adopted and will solve a lot of problems that takaful participants face in the

different countries where takaful is practiced.

As to whether hibah to anyone should be allowed, further research needs to be done.

Wa Allahu aclam

1 Section 163 (1) of the Insurance Act 1996 2 Legislation in many countries such as Malaysia and Singapore create a statutory trust for spouses and children with respect to life insurance proceeds. See for example Section 166 (1) of the Insurance Act 1996. 3 In Malaysia, the Sharciah Advisory Council, Bank Negara Malaysia deliberated on the matter and issued a resolution on it in 2003. See “Sharciah Resolutions in Islamic Finance”, Bank Negara Malaysia, 2006 4 See for example the report by The Straits Times (Singapore), January 18, 2009 5 Takaful Act 1984, Malaysia 6 ibid 7 Insurance Act 1963, Malaysia 8 Section 163 (4) of the Insurance act 1996 9 This is the case for Malaysia but in other jurisdictions similiar laws apply i.e. the relevant Insurance Act supersedes any other Act and where there is a conflict or inconsistency between a provision of the Insurance Act and that of other Acts, the provision of the Insurance Act will usually prevail. See for example, Section 172 and Section 199 of the Insurance Act 1996. 10 Such as the Australian Insurance Act 1995 11 Such as the Financial Services Act, United Kingdom 12 Even then some legal eagles may want to contest this for one reason or another. 13 Zuhaily, Wahbah, Al-Fiqh al-Islami wa Adillatuhu, Darul Fikr, Dimashq, 2006, 5: 3989 and Tanzil-ur-Rahman, A Code of Muslim Personal law Volume II, Islamic Publishers, Karachi, 1980, 24, quoting Al-Sharakhsi, Al-Kasani and Ibn Nujaym. 14 El-Gamal, Mahmoud A, An Economic Explication of the Prohibition of Gharar in Classical Islamic Jurisprudence, 2001, pdf, 4 15 Zuhaily, 5:3989-3990. The full text is as follows: أن يكون موجوداً وقت الهبة: فلا تنعقد هبة ما ليس بموجود وقت العقد مثل أن يهب ما يثمر نخله - 1في هذا العام، أو ما تلد أغنامه هذه السنة؛ لأنه تمليك لمعدوم، فيكون العقد باطلاً. ومثل: أن يهب ما في لوجود والعدم؛ لأن انتفاخ بطن هذه الشاة، وسلطه على القبض عند الولادة، فلا ينعقد لاحتمال االبطن قد يكون للحمل أو لداء في البطن.وكذلك لو وهب دقيقاً في حنطة أو دهناً في سمسم أو زبداً في لبن، أو زيتاً في زيتون: لا يجوز، وإن سلطه على قبضه عند حدوثه؛ لأنه معدوم للحال، بالتجديد.أما هبة اللبن في الضرع، والمعدوم ليس بمحل للملك، فوقع العقد باطلاً، فلا ينعقد إلا


والصوف على ظهر الغنم، والزرع والنخيل في الأرض، والتمر في النخيل: فهي كهبة المشاع الآتية تقع فاسدة، فلو فصل ذلك وسلم إلى الموهوب له، جاز؛ لأن الموهوب موجود مملوك للحال، إلا أنه لم ل فقد زال المانع، فتجوز الهبة وتصير صحيحة ينفذ لمانع، وهو كونه مشغولاً بغيره، فإذا فص.ووافق الشافعية والحنابلة مذهب الحنفية في هذا الشرط، فقالوا: كل ما صحبيعه صحت هبته. وقال المالكية: تجوز هبة ما لا يصح بيعه كالعبد الآبق والبعير الشارد والمجهول والثمرة قبل بدو صلاحها والمغصوب.16 ibid 17 Ibid. See also Tanzil-ur-Rahman, 24 18 El-Gamal, 4 19 Ibid, quoting Ibn Taymiya, A., Al-Fatawa Al-Kubra, Cairo: Harf (reprod.): Dar Al-Kutub Al-‘Ilmiyyah. in Encyclopedia of Islamic Jurisprudence (CDROM), 1998 20 For example, if the participant has not saved any money and that he needs to provide a certain amount for his single daughter who is a minor, he needs to provide double the amount, hence double the takaful contribution or the tabarruc amount. 21 Hibah is an excellent tool in estate planning as there is no hassle when the participant passes away since the takaful benefit is no longer subjected to the relevant laws such as the Probate and Administration Act 1959 and the Will Act 1959 mentioned above. See Ismail, Azman, Gift of Love, Personal Money, March 2003 22 Sharciah Resolutions in Islamic Finance, Bank Negara Malaysia, 2006, 27 23 Collection of al-Barakah Fatwas 1981-1997, 173 24 Ownership and Hibah Issues of the Takaful Benefit, Paper Presented by Dr Azman Mohd Noor and Dr Asmadi Abdullah at the ISRA Islamic Finance Seminar (IIFS) 11 November 2008, Kuala Lumpur, 12 25 Ibid. 26 Ibid. 27 Hadith narrated by Saad bin Abi Waqqas 28 Quran 12:67 29 Quran, 12:47-49 30 Azman Ismail, Personal Money, February 2003 31 ibid 32 al-Jawzi , Ibn al-Qayyim, Iclam al-Muwaqicin Rabb al-calamin, dar al-Fikr, n.d., 3 : 4 33 See for example, Section 166 of the Insurance Act 1996 34 Zaritsky, New Estate Planning Handbook, 247 35 Ibid, 248 36 Birds, John, Modern Insurance Law Second Edition, Sweet & Maxwell, London, 1988, 272 37 ibid 38 ibid 39 The Insurance Law of Malaysia, Myint Soe, 1979 Quins Pte Ltd Singapore , 98 40 Birds, 273 41 See Section 166 (4) of the Insurance Act 1996 42 (1926) Ch 48 43 (1933) Ch 126 44 AIR 1939 All 744 45 ibid 46 [1986] MLB(IND) 293 47 ibid 48 ibid 49 [1965] 2 MLJ 1 50 ibid. See also [1974] 1 MLJ 14 51 [1974] 1 MLJ 14 52 [1981] 2 MLJ 289 53 [1991] 1 CLJ 141 54 [1999] 1 CLJ 231


55 [1974] 1 MLJ 14 56 ibid 57 ibid 58 ibid 59 The Straits Times (Singapore), January 18, 2009 60 Sahih Muslim, Kitab al-Hibah 61 Aqil, Dr Jamaluddin Taha Al-, Aqd ul Hiba Bayn al-Fiqh al-Islami wal Qanun al-Madani, Cairo 1978 quoted in Nasir, Jamal J, The Islamic Law of Personal Status Third Edition, Kluwer Law International, The Hague, 2002, 253 62 Tanzil-ur-Rahman, 81 63 ibid. See also Nasir, Jamal J, The Islamic Law of Personal Status Third Edition, Kluwer Law International, The Hague, 2002 64 Ibid, 85 65 Ibid, 83 66 Ibid, 84 67 Ibid, quoting al-Sharakhsi and Ibn Nujaym 68 Ibid 87-88 69 Zuhaily, 5:3989 70 Ibid, 249 71 See for example S 152 (2) (a) of the Insurance Act 1996 72 Clarke, Malcolm A, The Law of Insurance Contracts Second Edition, Lloyds of London Press Ltd, London, 1994, 82 73 Pg 90 (1830) 10 B & C 724, 728 74 (1891) 1 QB 864. 866 75 (1875) 1 Ch D 419 76 There have not been a convergent view on the concept of a “natural person” and although some courts exclude corporations from the definition, others do not. 77 This is very preliminary and the discussion was not noted down because it was briefly mentioned and arose as a consequence of other discussions. 78 Tanzil-ur-Rahman, 33 79 7:31 80 17:26 81 25:67 82 2:219 83 2:3 84 2:177 85 Tanzil-ur-Rahman,33 86 Ibid, 34 87 Sahih Bukhari 88 bid 89 Mishkat, 2:94 90 Tanzil-ur-Rahman, 38. The author suggested that those interested in the detailed arguments of the jurists refer to Fath al-Bari vol v, cUmdatul Qari vol vi, Al-Sunan al-Kubra of Baihaqi vol vi and Al-Muhalla of Ibn Hazm vol vi. 91 Ibid, 39 92 Ibid, 39-47 93 Ibid, 41 94 Ibn Nujam, 7:286-287 quoted in Tanzl-ur-Rahman, 49 95 Ibid 53-54 96 ibid 97 Based on the legal maxim, “Nahnu nahkum bizawahir, Wa Allahu yahkum bi sarair.” 98 For further information refer Birds, 273

nomination and hibah issues in takaful

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